On July 12, it was reported that according to the latest World Bank data, India has surpassed France to become the sixth largest economy in the world. While this was welcome news, the Congress party took the lead in questioning the economic performance of the Modi government. A number of tweets by Congress leaders and workers claimed that India had already become the third largest economy in the world in 2011 (2013 according to some) when UPA-II was in power, and that the nation had in fact slipped in the global ranking from third to sixth. Among them was Brijesh Kalappa, spokesperson of the Congress party. It was also tweeted by Gaurav Pandhi, former social media head of INC.
Bhakts are exulting that India has beaten France to become the 6th largest economy in the world. Modi Effect!!
Ahem! India was 3rd Largest Economy in the world in 2011. Manmohan Defect!!https://t.co/GxWGzgb3er
— Brijesh Kalappa (@brijeshkalappa) July 12, 2018
India is the 6th biggest economy in the world and I completely agree that credit goes to Modi Govt because India was 3rd largest economy in the world, in 2013 😒 pic.twitter.com/SXmXI9s8aH
— Gaurav Pandhi (@GauravPandhi) July 12, 2018
Social media enthusiasts critical of the Government were not far behind and began sharing this statistic in large numbers on Facebook and Twitter.
Those who claimed that India was third in the list of the largest economies in the world had referred to various news reports such as an article by Rediff titled ‘India probably world’s third largest economy: OECD’ (2011), an article by Global Finance titled ‘India: Now Third-Largest Global Economy’ (2013) and an article by The Hindu which said, ‘India became third largest economy in 2011: World Bank’ (2014). With so many news articles stating that India was the third largest economy, is it then true that other nations have overtaken India on the economic front since then?
Was India the third largest economy in 2011?
News reports which stated that India had become the third largest economy in 2011 were held up in defense of the claim that the nation’s economic performance has slithered since then. The articles were based on a report of the World Bank released by the International Comparison Group (ICP) in 2014. The ICP report of 2011 which is the basis of the claim places India as the third largest economy in the world according to Purchasing Power Parity (PPP).
As can be seen from the table above, India ranked third in the world in 2011. This statistic has been compared to the latest World Bank data which ranks India as the sixth largest economy in the world. However, the key difference here is that this latest report’s findings are based on the nominal GDP method and NOT the PPP method.
The methodology for calculating size of economies
The popular term with reference to measuring the size of economies is Gross Domestic Product (GDP), which represents the total value of all the goods and services produced by a nation in a given year. Now, there are two components to the GDP, or two ways of measuring it- GDP (Nominal) and GDP (Purchasing Power Parity). Let us look at what these terms mean and what is the difference between the two.
Nominal GDP is the total value of goods and services produced in a country in a given year at current market prices. It is a quantitative concept which takes into account the total size of economies, focusing on volume of goods and services. The US dollar is the currency for measurement. This method, however, fails to consider the differences in the cost of living between different nations. As a result, another component of the GDP is considered- Purchasing Power Parity (PPP).
Purchasing Power Parity is measured in terms of comparing the value of a standard basket of goods across nations. As the term suggests, it is the measure of purchasing power of a unit of currency. Local price variations are taken into account to determine the relative size of the economy. PPP is considered to represent a qualitative measure of the economy.
Did India’s rank among largest economies plummet from 2011 to 2017?
If we were to compare the size of the Indian economy (nominal GDP) in 2011 with 2017 with reference to World Bank data, we find that according to a report of the World Bank published in July 2011, India was the ninth largest economy in the world in 2010, with a total output of US$1.72 trillion. The ten largest economies in the world by nominal GDP method are represented in the table below.
The graph below represents the rise in India’s GDP from 2009, the year UPA-II came to power to 2017. As can be seen, the Indian economy was valued at US$1.32 trillion in 2009, which jumped to $1.82 trillion in 2011. In 2014, the economy breached to US$2 trillion barrier and continued to grow to US$2.59 trillion in 2017 making it the sixth largest economy in the world.
At the same time, a comparison of India’s ranking in 2017 according to GDP (PPP) with India’s third rank in 2011 shows that the nation has maintained its standing and continues to rank third in the world on the basis of GDP (PPP) data.
GDP per capita
There is yet another measure of economic prosperity which is mostly glossed over with reference to India’s performance in this respect. This is GDP per capita, which is the measure of the total output divided by the number of people in the country. The resultant figure is representative of the average income of a citizen of that country in a given year. According to the World Bank, India with GDP per capita of US$1,940 (2017) languishes in the bottom rung. The table below represents a comparison of per capita GDP of the ten largest economies of the world according to nominal GDP for 2017. As can be seen, India may have overtaken France on the nominal GDP front but on GDP per capita, France is ranked 24th while India ranks a lowly 138 out of 184 surveyed nations.
Two different yardsticks for measuring the size of economies were juxtaposed and compared in order to score political brownie points. The fact of the matter is that according to the nominal GDP method, India’s economy has grown and surpassed France to become the 6th largest in the world and not plummeted in rank as claimed. At the same time, according to the GDP (PPP) method, India continues to be ranked third in the comity of nations. While the two main political parties squabble over who performed better on the economic front, it is GDP per capita which is the elephant in the room, the measure which deserves greater scrutiny as India has performed poorly in this regard irrespective of the government in power.